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Lessons on Investing like an Angel

Some angel groups expressed concern, around the time the JOBS Act became law, that equity crowdfunding would hurt them on two counts.  First, there was a concern that more money would chase deals, thus inflating valuations on potential investments.  Second, there was a concern that the advent of such portals (in the Title III context) and platforms (in the Reg D context) would compete with them for members.

While the jury is still out on these issues – and some angels groups are still very concerned – early indications suggest that interest in angel groups is growing, not shrinking.

Why is this?  Well, as AIMkts has been arguing all along (I believe we were the first pundit to so argue), the lifting of the ban and, to a lesser extent, all the media attention on crowdfunding, is serving as a wake-up call to the 90% or more of the approximate eight million accredited investors in the United States who have never acted as such.

Investing like and Angel InvestorThese people, who are only now beginning to learn for the first time that there is an entire world of “alternative assets” they can- and should- consider allocating some investment dollars into, are clamoring to learn more.  And, angel groups are among the best places to learn.

If you are thinking about checking out an angel group near you, or if you are thinking about making an angel investment, here are some of the things to consider:

Lesson 1: Angel investing isn’t always about making money.

Ever hear the adage, “the easiest way to make a small fortune is to start with a large fortune?”  Keep it in mind as you read this.  Angels invest in the very earliest stages of a startup, making it a highly risky endeavor.  Although it sounds counter-intuitive, making money shouldn’t be the sole focus for an angel.  If it is, you should look into investing in later stage rounds in a company that has more secure footing.  Angels, in general, invest because they like the thrill of the chase.  Angels like to be part of something wholly brand new and find adventure in the ups and downs that a startup presents.  If that doesn’t sound like you, proceed with caution.  If it does, you’ll probably enjoy the rollercoaster ride.

Lesson 2: Angel investing is more like a date, than a marriage.

Many start-ups appreciate the insight and connection you, as an angel, may bring to the table (though your investment capital will probably be appreciated more).  At the same time, don’t expect to take up an office at the company.  In other words, your initial interaction may be “hot and heavy” (particularly before you write a check) but it is not likely to last.

Lesson 3: Sticking with what you know is often best.

When you’re exploring angel investing, there is a distinct advantage to sticking to what you know.  In other words, if you are a physician, consider pharma, whereas if you made your money in internet, investing in that may make the most sense.  This will help you increase your chances of picking a winner and it will help you to have more meaningful involvement with the company you invest in, since you will more likely be able to provide real world advice from your own experience.

Lesson 4:  Treat people well.

One of the great things about being part of a good angel group is that there will be a lot of smart people in the room with you.  I have found these meetings to be a great place to meet people and, over time, forge some close friendships, and get some great advice.  One of the things I will never forget, however, is the way one person in particular treated the entrepreneurs who came to pitch.  This angel (though I don’t think I ever saw him write a check) cross-examined every pitching CEO as if they the CEO was on trial.  His (the angel’s) main priority seemed to be to try to make people look dumb or to make himself appear to be the smartest person in the room.  Needless to say, we didn’t invite him to dinner with us after the meetings.  So, like the Golden Rule says, (my paraphrase, of course, modified for the context), just because you’re writing checks doesn’t mean you can be a jerk.

About Stephanie Strait

Stephanie Strait is Chief Operating Officer for Financial Poise and DailyDAC, LLC. She is responsible for managing initiatives and general internal-facing functions across divisions. She also produces the Company’s podcast, Financial Poise Radio™.

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